International Business Machines Corp. v. Comdisco, Inc., 11922

• Court: Court of Chancery of Delaware
• Citation: 602 A.2d 74
• Docket Number: No. 11922,11922
• Parties: INTERNATIONAL BUSINESS MACHINES CORPORATION, a New York corporation and IBM Credit Corporation, a Delaware corporation, Plaintiffs, v. COMDISCO, INC., a Delaware corporation, Defendant. Civ. A.
• Decision Date: 02 July 1991

Page 74

602 A.2d 74

INTERNATIONAL BUSINESS MACHINES CORPORATION, a New York

corporation and IBM Credit Corporation, a Delaware

corporation, Plaintiffs, v. COMDISCO, INC., a Delaware corporation, Defendant.

Civ. A. No. 11922.

Court of Chancery of Delaware,

New Castle County.

Submitted May 31, 1991.

Decided July 2, 1991.

R. Franklin Balotti, and Anne C. Foster, of Richards, Layton & Finger, Wilmington, Paul C. Saunders, and Evan R. Chesler, of Cravath, Swaine & Moore, and Howard Weber, and Morris Waisbrot, of Davis, Markel & Edwards, New York City, for plaintiffs.

A. Gilchrist Sparks, III, and Donald F. Parsons, Jr., of Morris, Nichols, Arsht & Tunnell, Wilmington, and Philip W. Tone, Jerold S. Solovy, and Donald R. Harris, of Jenner & Block, Chicago, Ill., for defendant.

OPINION

CHANDLER, Vice Chancellor.

This suit is based on a dispute over rights in computer equipment. The parties are as follows. International Business Machines Corporation ("IBM") is a well-known manufacturer of, among other things, computer equipment. Plaintiff IBM Credit Corporation ("Credit") is in the business of buying IBM equipment, including computer equipment, and selling or leasing that equipment. Defendant Comdisco, Inc. ("Comdisco") also buys and resells or leases computer equipment. Thus, Comdisco is a competitor of Credit.

One of the machines which IBM produces and in which both Credit and Comdisco deal is the "3090 line" of computers. Each 3090 line computer system consists of one or more processors (which can be thought of as the "computers" themselves) together with a variety of components including memory components, storage components, "channels" (circuitry that connects the processors and other devices) and other components. Components can be added or deleted from the processor to provide a machine which is most amenable to the needs of the consumer.

The 3090 line was introduced by IBM more than five years ago. Since that time, Credit has purchased a number of these computer systems from IBM and leased them to consumers (the "lessees") not party to this lawsuit. According to the complaint, typically, but apparently not always, these leases between Credit and third parties were pursuant to an agreement drafted by Credit and denominated the "Term Lease Master Agreement" (the "TLMA"). With respect to at least ten of the 3090 line machines leased by Credit to the lessees, the lessees have re-leased some or all of the equipment to Comdisco. ¹ The plaintiffs claim that these re-leases to Comdisco have resulted in the breach of the TLMA's entered into between Credit and the lessees in that: (1) the re-lease to Comdisco was in some cases for a term exceeding the term of the lease between Credit and the third parties; (2) Comdisco has in a manner prohibited by the TLMA removed components from machines and; (3) Comdisco has re-leased the computers to third parties and sold some of the components, once again in derogation of the TLMA. ² Comdisco denies that its actions, or the actions of the lessees in dealing with Comdisco, represent breaches of the TLMA.

To resort to the hoary and simplistic property law analogy of the "bundle of sticks," Credit prior to the execution of each TLMA was the owner of a 3090 line system, holding each stick of the bundle. Pursuant to the TLMA it transferred some quantum of ownership, some of the "sticks," to third parties, the lessees. Credit claims, however, that the lessees purported to transfer more sticks to Comdisco than they had received from Credit. In fact, Credit claims that Comdisco's use of the re-leased equipment breaches Comdisco's own contracts with the lessees. That is, Credit has asserted that Comdisco, in selling and subleasing the equipment, has purported to transfer more sticks of the bundle to its purchasers and sublessees than the lessees purported to transfer to Comdisco.

Comdisco, on the other hand, contends that it has exerted property rights in the 3090 line equipment consistent with the property interest that it received from the lessees and the property interest that those lessees received from Credit. Thus, reduced to its simplest form, this dispute involves Comdisco and Credit each asserting property rights in a number of 3090 computer systems. The complaint also acknowledges that the third parties (the lessees) have certain rights in the same systems. These claims of ownership rights overlap; the sum of the sticks each party claims to hold is more than those present in the original bundle. The resolution of this dispute must turn on an examination of the contracts between Credit and each third party, and that third party and Comdisco.

Credit characterizes Comdisco's activities with respect to the 3090 systems in question as amounting to conversion, tortious interference with contract (the TLMA's), tortious interference with business relations, breach of contract (that between Comdisco and the lessees) and unfair competition. ³

There is another, conceptually separate, part of this lawsuit. IBM holds the copyright on certain computer software known as the Licensed Internal Code (the "microcode") which it claims Comdisco has copied and sold. These transfers by Comdisco of the microcode are not necessarily related to the sale or re-lease of the 3090 line equipment originally owned by Credit which is the subject of that portion of the lawsuit described above. IBM claims that the unauthorized copying and sale of the microcode amount to breaches of contracts between IBM and Comdisco and represent deceptive business practices on the part of Comdisco. ⁴

Comdisco has moved to dismiss this action. In addition to raising defenses to each count of the plaintiffs' complaint individually, Comdisco raises a general defense to causes of action pled by Credit, which appears to me at this stage of the proceedings to be quite substantial. With respect to the 3090 line equipment leased by Credit to the lessees and subleased by Comdisco, Comdisco points out that Credit, the lessees and Comdisco all claim property rights in the equipment. These property rights must be determined by an analysis of the contract between Credit and the lessees, the TLMA. Credit, however, has not joined its lessees in this action and, therefore, the rights of these lessees in the computer equipment, should the suit go forward, will be decided in their absence. This, argues Comdisco, could impair not only the rights of the lessees in the equipment but also subject Comdisco to inconsistent obligations (those arising to Credit under this lawsuit and those which might be enforced by the lessees against Comdisco in a subsequent suit). Therefore, argues Comdisco, that portion of this lawsuit based on the 3090 line equipment subleases must be dismissed due to failure to join an indispensable party.

With respect to the portion of the lawsuit based on copying the microcode, Comdisco argues that these two counts of plaintiffs' complaint are nothing more than attempts to impose state law remedies in a situation already completely addressed by the federal copyright laws. Comdisco further contends that these copyright laws expressly prohibit the state law forms of action IBM seeks to employ here and that IBM's action with respect to the copying of the microcode is therefore preempted by the federal copyright laws.

Before examining these and the other defenses which Comdisco has raised, however, I must first address the threshold issue present, explicitly or implicitly, in every suit at law or equity: has this court jurisdiction to hear and adjudicate the matters at hand? At my request, the parties have examined this issue of equitable jurisdiction and have submitted memoranda which have been helpful to me in the decision which follows. ⁵

In Delaware, common law and statute limit the jurisdiction of the Court of Chancery. 10 Del.C. § 342 provides that:

The Court of Chancery shall not have jurisdiction to determine any matter wherein sufficient remedy may be had by common law, or statute, before any other court or jurisdiction of this State.

Thus where a remedy provided by a law court of the state would be "sufficient," that is, "complete, practical and efficient," this Court is without jurisdiction. ⁶ In re Wife, K., Del.Ch., 297 A.2d 424 (1972); Hughes Tool Company v. Fawcett Publications, Inc., Del.Ch., 297 A.2d 428 (1972), rev'd on other grounds, Del.Supr., 315 A.2d 577 (1974). Equitable jurisdiction must be determined from the face of the complaint as of the time of filing, with all material factual allegations viewed as true. Diebold Computer Leasing, Inc. v. Commercial Credit Corp., Del.Supr., 267 A.2d 586 (1970). It has been frequently said that this Court, in determining jurisdiction, will go behind the "facade of prayers" to determine the "true reason" for which the plaintiff has brought suit. Strickler v. Sussex Life Care Assoc., Del.Super., 541 A.2d 587 (1987); Harman v. Masoneilan Intern., Inc., Del.Ch., 418 A.2d 1004 (1980), rev'd on other grounds, Del.Supr., 442 A.2d 487 (1982). By this it is meant that a judge in equity will take a practical view of the complaint, and will not permit a suit to be brought in Chancery where a complete legal remedy otherwise exists but where the plaintiff has prayed for some type of traditional equitable relief as a kind of formulaic "open sesame" to the Court of Chancery. A practical analysis of the adequacy of any legal remedy, then, must be the point of departure for each matter which comes before this Court.

In analyzing the adequacy of the legal remedy available in this case, it is useful to examine the two main causes of action, so conceptually dissimilar, separately. I turn first to the alleged torts committed by Comdisco in connection with its leasing and re-leasing the 3090 line equipment.

Credit first claims that in selling 3090 system components and in re-leasing 3090 system equipment for periods longer than the original Credit-lessee lease, Comdisco...